Sunday, 2 November 2014

Intraday trading using Breakout Method

A rise in a price of security above a certain level called as resistance or a drop below a certain level called as support is called breakout. A breakout is used to signify a continuing move in the same direction. It can be used by technical analysts as a buy or sell indicator.

Look at the image below for graphical explanation.

How can breakout help us in intraday trading?

Every trading underlying has a trading range at any day. In other words, on any given day, the trading underlying will move between two prices (high and low). Our main strategy should be to trade the underlying when it is about to start its biggest move for intraday (May it be upside or downside). To explain this, let us take a very simple example

Example 1:The stock ABC is trading at 100 at any point of time during the day. In another half hour it starts its sharp upward movement and creates new high. Our main strategy should be to catch a part of that sharp move (we cannot take the benefit of entire sharp upward movement or downward movement. And this is what we try to do with breakout method. We try to take benefit from a small part of sharp upward movement or downward movement.

How to identify breakout levels?

The most important is how to find the breakout levels. This section will tell how to find the breakout levels. To find the breakout levels for any given day, we take into account previous day’s range. Based on previous day’s range and current day’s fluctuation, we find the breakout levels. Based on previous day’s range, we create 3 areas of trading. These 3 areas are

1: Best possible Trading

2: Good Trading

3: Useless Trading

Follow the below steps to calculate the breakout levels.

Step 1: Find out the previous day’s high and low.

Step 2: Find out current day’s high and low at any point of time.

Step 3: Note down 2 fractions (0.45 and 0.75)

Step 4: Find the range of previous day. (Previous day high – Previous day low)

Step 5: Multiply the range for previous day with the two fractions from step 3. (0.45 and 0.75). Mark this result as MF1 and MF2.

Step 6: Now find current day’s range (Today’s high – Today’s low)

Step 7: Find out whether current day’s range is below MF1, between MF1 and MF2 or above MF2.

Parag Patil is a technical analyst and trading system designer with stock excel programmer. I hope the articles and live chart of nse future and mcx on this Website will be as helpful and profitable to you . I try to update and post new articles tips everyday.
My motto is to encourage the traders, so that they should able to understand the technique views behind the moment of stocks. I have deeply analyzed with many technical indicator with parameter and added to my amibroker afl. And even taken backtest report which is never being implemented. Any of the analyst expect me.
Seeing all this you may understand that my views is more technical than commercial. If you are profited by my views I fill happy.